Derek Burney: EVs sales and production clash with market realities

EV sales in North America face new market realities and automakers are shifting their production to meet actual, rather than anticipated demand. After being encouraged by government policy to invest tens of billions of dollars to transition to electric vehicles, companies are rapidly changing gears.

As Sam Fiorani, Vice President of AutoForecast Solutions observed in March, “Getting the first 10 per cent of the electric vehicle market is relatively easy with a good product and a market that wants that product. The next 90 per cent will be much harder to convert.”

For some customers, the high cost, even with substantial government subsidies, is a major constraint, especially during a period of high inflation. The lack of adequate charging facilities is another. Although the U.S. Administration allocated US $7.5 billion in the “Inflation Reduction Act” to construct new charging facilities, only seven were built in two years. Ironically, most charging stations rely heavily on fossil fuels for power.

Range anxiety flows from inadequate charging facilities. Even the average 300- mile range becomes lower in winter and for non-urban, highway driving, especially in mountain terrain.

According to a June 2024 McKinsey survey, 46 per cent of EV owners are likely to switch back to gas-powered vehicles for their next purchase. The study found that the biggest reason is that charging facilities are unsuitable.

The Biden Administration’s push to have half of all car sales to be electric by 2030 now seems wildly ambitious, as does California’s plan to ban completely the sale of new gas-powered cars by 2035, similar to the Liberal government’s plan in Canada.

It is debatable which is more obtuse: unrealistic mandates initiated by government or attempts by automakers to emulate government edicts with production plans that defy basic business sense. The track record to date indicates that neither governments nor automakers are adept at determining customer preferences, nor can they force-feed purchase mandates on consumers.

Brian Moody, Executive Director of Auto Trader, commenting on the McKinsey study, said “Sometimes when you buy something based on ideology, it doesn’t always work out the way you had anticipated.”

The harshest reality is that American drivers still prefer big, gas-burning trucks and SUVs, and automakers revel in the profits from their best sellers. Last year, Ford promised to build a new three-row, electrical SUV at its Oakville plant starting as early as 2025. But, in April, the company tapped the brakes putting this plan on hold until at least 2027, announcing unashamedly that this would “allow for the consumer market for three-row EVs to further develop and enable Ford to take advantage of emerging battery technology.”

Ford decided instead that Oakville would build Super Duty trucks, a larger version of its F-150 series — a perennial best-seller in the U.S. and Canada. CEO Jim Farley acknowledged in Jly that “Even with our Kentucky truck plant and Ohio Assembly plant running flat-out, we can’t meet the demand for the Super Duty.” Ford indicated that it had plans for an “electrified” version of the Super Duty but offered no date – not surprising given that sales of gasoline-powered trucks and SUVs generate the billions of dollars of profits needed to offset Ford’s $1 billion of losses each quarter ($44,000 per vehicle) from EVs, including the ill-fated Lightning 150.

Ford is not alone. A few weeks ago, GM trimmed its EV production targets for the year citing “weak demand.” GM is about to launch eight all new or redesigned gasoline-powered SUVs in its home market. In the second quarter of this year, its profits were double those of Tesla.

Volkswagen, Mercedes and other automakers also scaled back their EV plans, acknowledging that big investments got ahead of consumers’ appetite for a full conversion. As demand waned, company losses on EVs worsened.

Automakers failed to recognize that hybrids would provide a pragmatic intermediate step and that gas-powered vehicles will be a key component of the industry for at least 20 more years.

The notion that large, long-haul transport trucks will convert to electric within the next decade is sheer fantasy. The cost of the truck and the size of their batteries make the conversion prohibitive. According to the International Council on Clean Transportation (in February 2022), the estimated cost for a long-haul electric truck is $510,000.

Yet another complication is that pressure is building for a per mile tax on EVs to replace dropping gas revenues used to build and maintain America’s extensive roadways and public transit systems. Can Canada be far behind?

Because EVs require fewer workers, companies like Stellantis are announcing significant layoffs. Those who claim that the green energy transition would generate millions of new jobs were sadly mistaken.

Chinese EVs, costing half as much as North American, European and Japanese models, may soon dramatically disrupt the global market. Governments are scrambling mightily to block massive Chinese imports in part to justify and stabilize their questionable, large subsidies for battery production plants.

China’s dominant position in the supply of rare earth minerals vital for EV production is a decided advantage. North American and European governments have largely stymied development of these crucial minerals.

Neither a prospective Trump nor a pro-labour Harris Administration will welcome EV competition from China. Canada just announced that it will emulate the Biden Administration’s decision announced in May and impose 100 per cent tariffs on Chinese EVs, triggering potential retaliation by Beijing — a political reality further complicating the already challenging market conditions.

The checkered experience with EVs undermines the broader cause pursued by climate activists. As Danish author Bjorn Lomborg wrote in the New York Post: “Despite much hype, the much-vaunted green energy transition away from fossil fuels isn’t happening. … Real change only happens if new energy services are either better or cheaper. Solar and wind fail on both counts.” Hydrogen and biofuel projects, intended to power planes, ships and trucks, are collapsing under higher costs, proving how difficult the transition from oil and gas will be. All this makes government mandates more unrealistic and intensifies the challenges for credulous automakers.

Derek H. Burney is a former 30-year career diplomat who served as Ambassador to the United States of America from 1989-1993.